For those interested in issues such as climate change, social inequity, and the financial crisis, join me in a dialogue to explore the challenges and opportunities associated with sustainability and the role of business in a sustainable society.

Friday, March 9, 2012

What keeps you up at night?

Back in December, a couple of undergraduate business students asked me what I thought were the top three global issues that worried me the most. I think they were somewhat taken aback when I said that my number one was ecosystem degradation. Not poverty, obesity, climate change or economic calamity. While these are incredibly important, they pale in comparison to my number one because in many ways they represent a fundamental consequence or symptom of ecosystem degradation.

On January 10th, 2012 the Environmental Commissioner of Ontario released a very important report entitled “Biodiversity: A Nation’s Commitment, and Obligation for Ontario”. The report strongly advised that provincial governments across Canada stem the continuing decline in ecosystems. Yet it received hardly any face time in the major news outlets. This report joins a barrage of highly consistent studies showing the systematic decline of the world’s ecosystems. The most important study came out in 2005 entitled the United Nations Millennium Ecosystem Report. Many have argued that this is likely the most important document to be released that was read by so few.

Why do we really care about ecosystem degradation? Is it our guilty conscience? Is it the loss of the beauty of a hike, a refreshing swim, or ski trip?

Healthy ecosystems purify water, regulate the climate, floods, and disease. By doing so, they represent a natural healing mechanism for the planet. Like an antidote, they cure the disease that we impose on our planet in the form of pollution that we dump into the air, oceans, and soil, effects that compromise our own well-being. Our civilization is implicated not only in the overwhelming provision of this disease but also the reprehensible erosion of the antidote. That “double-whammy” is the most profound realization that many people fail to acknowledge or understand.

In our very economically-oriented society, it may be appropriate to draw on the analogy of an endowment fund. An endowment fund is a lump sum of capital, from which the owners of the fund draw interest to fund activities. The fund is meant to exist indefinitely because the organization does not draw on the fund itself (i.e. capital) and instead relies on the interest this capital produces. Now imagine a scenario where the organization spends beyond the interest and takes a slice of the capital. Over time of course the interest collected will diminish and the organization will need to take larger and larger chunks out of the fund to maintain its spending amount until it is depleted.

Analogously, the Earth is very much like an endowment fund in that it has a relatively fixed amount of “natural capital” that over the course of time emits interest or ecosystem services for animals and mammals to use. These ecosystem services include water, air, soil, nutrients, food, and a stable climate. They also work to turn our waste (carbon dioxide, effluent) into new sources of food. This cycle is so fundamental yet compromised by our very linear approach to industrialization. Drawing on the analogy even further, the question we need to ask is how much of natural capitals’ interest are we using for our own needs?

In 2011, we consumed 135% of the interest (see website that tracks this) provided by the Earth’s natural capital and this number is increasing every year. The water we use, pollute and dump back into our water systems, the air we pollute, the oceans we pollute, the soil that we use and degrade, the plants we consume, the fish we consume, etc. all represent humanity’s use of ecosystem services. But because we consume 135% of the interest created from natural capital, we are slowly consuming the capital the planet has to offer. You don’t need a biology or economics degree to realize that we’re essentially on the road to bankruptcy as NYtimes columnist Tom Friedman wrote.

There has not been one peer reviewed study in over 20 years that has refuted this undeniable fact. Yet, we live our lives and consume in ways that show a profound ignorance of this knowledge. Why? I posted another blog with some answers.

Business is indeed implicated in this. Politically our obsession with the economy is overshadowing the ecological catastrophe we’re facing. Socially, we fail to understand the complexity of the above and base our everyday decisions on a very uni-dimensional set of criteria. Because we think of economic development and ecosystem repair as a zero sum game, our prioritization of the economy only exacerbates ecosystem degradation. We see this naïve perspective in our politicians, in many executives of today’s leading companies, and in ourselves as investors and consumers.

However, a growing concentration of entrepreneurs and managers see that business survival is entirely dependent on a healthy ecosystem. These individuals are visionaries. They are able make decisions that create financial and ecological value even though the former will not come to fruition well after any of the latter is created. In other words, they are defying the pressures to create short-term value for the sake of our humanity and the planet. Examples include Level Ground Trading, Better Place, SEKEM, FrogBox, Patagonia, Interface, Honey Care Africa, &Beyond, Bullfrog Power, Synergy Enterprises, and Turiya Group.

The challenge is that they are up against an economic system that rewards large businesses to continue ecosystem degradation as a means to save cost. How do you compete in an environment where ecosystem preservation represents a competitive disadvantage? A common criticism is that the businesses listed above are small and fail to grow in size that demonstrate that these businesses are sustainable. But their lack of success through growth is not because of a poor business model but because the existing socio-economic system punishes these businesses and rewards those that compete against them unsustainably.